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Plaintiff-Appellant,
v.
ACRISURE BUSINESS
OUTSOURCING SERVICES, LLC;
ACRISURE, LLC; CAMPBELL
MANAGEMENT GROUP, INC.,
No. 12-6179
(D.C. No. 5:11-CV-00863-C)
(W.D. Okla.)
Defendants-Appellees,
and
PATRICK MONTGOMERY;
EMPLOYMENT TRADITIONS, INC.;
PEOPLE ESSENTIALS, INC.; E.T. 2,
INC.; E.T. 4, INC.; E.T. 6, INC.; E.T. 10,
INC.; CFC I/ET, INC.; CFC II/ET, INC.;
MONTGOMERY, INC.,
Defendants.
________________________________
STATE OF OKLAHOMA, ex rel.,
JOHN DOAK, Insurance Commissioner,
as receiver for Park Avenue Property and
Casualty Insurance Company,
Plaintiff-Appellant,
v.
ACRISURE BUSINESS
No. 12-6180
(D.C. No. 5:11-CV-00864-C)
(W.D. Okla.)
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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Campbell conducted the due diligence for the transaction. The parties eventually
agreed on a deal that covered 126 customer accounts, or 51.6% of Traditions assets.
To that end, on December 31, 2008, Campbell sold all of its assets, including
Acrisure Services, a Michigan limited liability company, to Acrisure, a Michigan
limited liability company that was formed expressly for the purpose of acquiring
Campbell. Later that same day, Acrisure Services purchased approximately 51% of
Traditions accounts for $4.5 million. Acrisure guaranteed the promissory notes used
to fund part of the purchase of Traditions. At or about the time of the transaction,
Traditions employees began to tell its customers, vendors, and creditors that its
name would change to Acrisure Services effective January 1, 2009. Following the
closing, Acrisure Services hired 33 of Traditions 38 employees, including
Mr. Montgomery.
Not long after the transaction closed, the Insurers went into liquidation.
Mr. Doak eventually filed two separate state court suits in which he alleged more
than $9 million in damages on behalf of each Insurer for: (1) breach of contract
against Traditions; (2) negligence and breach of fiduciary duty against
Mr. Montgomery; (3) constructive fraudulent transfer against Traditions,
Mr. Montgomery, and the ABOS defendants; (4) successor liability against the
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designated as the deadline for completion of discovery and other matters such as
dispositive motions. In October 2011, Acrisure and Campbell moved for judgment
on the pleadings on the grounds that they were not parties to the purchase agreement
and therefore could not be liable as a matter of law. Mr. Doak filed an unopposed
motion for extension of time to respond. In his response filed on December 2,
Mr. Doak argued for more time to conduct discovery to determine whether Acrisure
and/or Campbell were the alter-egos of Acrisure Services or had received some of
Traditions assets. The district court denied the motion for judgment on the
pleadings on January 30, 2012.
In the meantime, on November 11, 2011, the ABOS defendants served written
discovery, and in early February 2012, they served a notice to depose Mr. Doak.
Although Mr. Doak eventually responded to the requests for admissions, he never
1
The district court certified its summary judgment orders as final under
Fed. R. Civ. P. 54(b). As part of the certification order, the court acknowledged the
entry of a consent judgment in favor of Mr. Doak on his claims against defendants
Employment Traditions, Inc., People Essentials, Inc., E.T. 2, Inc., E.T. 4, Inc., E.T. 6,
Inc., E.T. 10, Inc., CFC I/ET, Inc., CFC II/ET, Inc., and Montgomery, Inc. The court
also entered a judgment that dismissed Mr. Doaks remaining claims against
Mr. Montgomery without prejudice pursuant to a stipulation.
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having agreed to an extension and insisted that they were willing only to discuss an
extension of time for Mr. Doak to respond to the past-due discovery. On March 1,
2012, while Mr. Doaks motion was pending, the ABOS defendants filed for
summary judgment. On March 2, the district court denied Mr. Doaks motion to
extend the deadlines.
A schedule may be modified only for good cause and with the judges
consent. Fed. R. Civ. P. 16(b)(4). [T]he court may modify the schedule on a
showing of good cause if it cannot reasonably be met despite the diligence of the
party seeking the extension. Fed. R. Civ. P. 16 advisory committees note (1983
Amendment Discussion).
We review a courts refusal to enter a new scheduling order for abuse of
discretion. Rimbert v. Eli Lilly & Co., 647 F.3d 1247, 1254 (10th Cir. 2011). An
abuse of discretion occurs when the district courts decision is arbitrary, capricious or
whimsical, or results in a manifestly unreasonable judgment. Moothart v. Bell,
21 F.3d 1499, 1504-05 (10th Cir. 1994) (internal quotation marks omitted). See also
Bylin v. Billings, 568 F.3d 1224, 1231 (10th Cir. 2009) (recognizing that appellate
courts that have applied Rule 16 have afforded wide discretion to district courts
applications of that rule).
There was no abuse of discretion. As the district court explained in its order,
Mr. Doak has not shown good cause for extension: In addition to continuously
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B.
denial of his motion to extend the deadlines and the second under Fed. R. Civ. P.
56(d) to delay consideration of summary judgment.
As to the motion to reconsider, Mr. Doak argued that the district court
misunderstood his original motion to mean that the defendants motion for judgment
on the pleadings was still pending, when what he really meant is that his discovery
efforts were delayed while the motion was pending from late October 2011 through
late January 2012, when the court denied it. He stated that it was always his
counsels intention to conduct discovery and explained for the first time that without
the information, he may be unable to advance [his] claims. Aplt. App. at 338. He
also repeated his previous arguments concerning the alleged burdensome discovery,
the press of other business, and the relatives death. According to Mr. Doak, the
order should be reconsidered to prevent the manifest injustice that would result.
Id. at 334. Attached to the motion to reconsider were Mr. Doaks proposed
interrogatories and request for production of documents.
The district court applied the standard in Fed. R. Civ. P. 59(e) in its analysis
and denied the motion. Grounds warranting a motion to reconsider include (1) an
intervening change in the controlling law, (2) new evidence previously unavailable,
and (3) the need to correct clear error or prevent manifest injustice. Servants of
Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000). A motion for
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For all intents and purposes, when the district court denied the motion to
reconsider, the Rule 56(d) motion became moot because there was not going to be
any discovery. Mr. Doak acknowledges as much when he concedes that [d]enial of
the first motion naturally leads to the denial of the second. Aplt. Opening Br. at 31.
He nonetheless presses forward and argues generically that the scheduling order
simply did not give him enough time to conduct discovery.
The general principle of Rule 56([d])2 is that summary judgment should be
refused where the nonmoving party has not had the opportunity to discover
information that is essential to his opposition. Price ex rel. Price v. W. Res., Inc.,
232 F.3d 779, 783 (10th Cir. 2000) (brackets and internal quotation marks omitted)
(footnote added). Rule 56(d) requires the party opposing summary judgment to file
an affidavit specifi[ying] [the] reasons [why] it cannot present facts essential to
justify its opposition. This includes identifying (1) the probable facts not
available, (2) why those facts cannot be presented currently, (3) what steps have been
taken to obtain these facts, and (4) how additional time will enable the party to obtain
those facts and rebut the motion for summary judgment. Valley Forge Ins. Co. v.
Health Care Mgmt. Partners Ltd., 616 F.3d 1086, 1096 (10th Cir. 2010) (brackets
and internal quotation marks omitted).
The language that appeared in subsection (f) was moved to subdivision (d)
without substantial change. Fed. R. Civ. P. 56 advisory committees notes
(2010 Amendments).
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Standard of Review
Mr. Doak appeals from the grant of summary judgment in favor of the ABOS
defendants on his claims for successor liability and fraudulent transfer. In diversity
cases, the laws of the forum state govern our analysis of the underlying claims, while
federal law determines the propriety of the district courts summary judgment.
Morris v. Travelers Indem. Co. of Am., 518 F.3d 755, 758 (10th Cir. 2008). In
making choice of law determinations, a federal court sitting in diversity must apply
the choice of law provisions of the forum state in which it is sitting. Shearson
Lehman Bros., Inc. v. M & L Invs., 10 F.3d 1510, 1514 (10th Cir. 1993). We review
the district courts determinations of state law de novo. Ayala v. United States,
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49 F.3d 607, 611 (10th Cir. 1995). The district court applied Michigan law to the
claim for successor liability without objection from either side and the parties
continue to argue that Michigan law applies to this claim on appeal. We agree that
Michigan law applies. As to the claim for fraudulent transfer, the court did not
decide whether Michigan or Oklahoma law applied because the law is virtually the
same in both states and the claim failed regardless of which state law applied. Again,
we agree with this approach.
We review a district courts grant of summary judgment de novo, applying
the same standard as the district court. Helm v. Kansas, 656 F.3d 1277, 1284
(10th Cir. 2011). Summary judgment is appropriate if the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to judgment as
a matter of law. Fed. R. Civ. P. 56(a). In determining whether summary judgment
is proper, we view the evidence in the light most favorable to the non-moving party.
Helm, 656 F.3d at 1284.
B.
Successor Liability
Under Michigan law,
where the purchase is accomplished by an exchange of cash for assets,
the successor is not liable for its predecessors liabilities unless one of
five narrow exceptions applies. . . . (1) where there is an express or
implied assumption of liability; (2) where the transaction amounts to a
consolidation or merger; (3) where the transaction was fraudulent;
(4) where some of the elements of a purchase in good faith were
lacking . . . ; or (5) where the transferee corporation was a mere
continuation or reincarnation of the old corporation.
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Foster v. Cone-Blanchard Mach. Co., 597 N.W.2d 506, 509-10 (Mich. 1999)
(internal quotation marks omitted).
1. First Exception Assumption of Liability
We agree with the ABOS defendants that there are no facts in the record to
indicate an express or implied assumption of liability and Mr. Doak appears to
concede the issue. Therefore, the first exception does not apply.
2. Second Exception De Facto Merger
As to the second exception, Mr. Doak argues that there was sufficient evidence
from which a jury might find a de facto merger. Michigan law recognizes a de facto
merger in instances where:
(1) There is a continuation of the enterprise of the seller
corporation, so that there is a continuity of management, personnel,
physical location, assets, and general business operations.
(2) There is a continuity of shareholders which results from the
[p]urchasing corporation paying for the acquired assets with shares of
its own stock, this stock ultimately coming to be held by the
shareholders of the seller corporation so that they become a constituent
part of the purchasing corporation.
(3) The seller corporation ceases its ordinary business
operations, liquidates, and dissolves as soon as legally and practically
possible.
(4) The purchasing corporation assumes those liabilities and
obligations of the seller ordinarily necessary for the uninterrupted
continuation of normal business operations of the seller corporation.
Turner v. Bituminous Cas. Co., 244 N.W.2d 873, 879 (Mich. 1976) (emphasis and
internal quotation marks omitted).
Mr. Doak argues there can be a de facto merger in the context of a cash
transaction. On the other hand, the ABOS defendants argue that the requirement
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of shareholder continuity has been excused only in product liability cases. We need
not decide the issue because there is no evidence of two of the other three Turner
factors.
As to the first Turner requirement, it is correct that 33 of Traditions
38 employees, including Mr. Montgomery, went to work for Acrisure Services.
Setting aside the fact that there were several employees who were not hired,
Mr. Doak presented no evidence to rebut the affidavit of Acrisure Services
secretary/treasurer that the company had its own managers who had never been
affiliated with Traditions, as well as its own offices, equipment, and business
operations.
As to the third Turner requirement for a de facto merger, the district court
found that a letter from Traditions lawyer stating the company ceased operations on
December 31, 2008, weighed in Mr. Doaks favor. But as the court found, [t]he
remaining factor[], however, do[es] not. Aplt. App. at 731. There was no evidence
that Acrisure Services assumed any of the liabilities or obligations of Traditions. To
the contrary, rather than assuming the obligations and liabilities of Traditions
contracts, the undisputed evidence was that within two weeks of the closing, Acrisure
Services executed its own, new contracts with all of Traditions customer accounts
that were part of the sale.
According to Mr. Doak, the district court erred by adopting an all-or-nothing
approach to its determination of whether there was a de facto merger. His apparent
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argument is that it is not necessary to meet all four Turner requirements to have a
de facto merger. Even if we accept Mr. Doaks argument that a stock purchase is not
required, he has not cited any authority that only some, but not all, of the remaining
requirements need to be met. For example, taken to its logical conclusion this
argument would mean that a de facto merger occurred simply in the face of a seller
corporation ceasing its ordinary business operations shortly after the sale. Michigan
law requires more. See Turner, 244 N.W.2d at 879.
3. Third & Fourth Exceptions Fraudulent Transaction or Lack of Good
The third and fourth exceptions are where the transaction is fraudulent or some
of the elements of a purchase in good faith are lacking. The district court found that
there was no evidence to substantiate Mr. Doaks arguments that the ABOS
defendants should have known that Traditions liabilities significantly outweighed its
assets or that Traditions was prohibited from transferring its accounts unless its
payments were current.
Mr. Doak raises essentially the same arguments on appeal. First, he says that
it is unlikely that one or more of the ABOS defendants did not know about the
contractual obligation [Traditions] had to the [Insurers] not to engage in the sale of
more than 50% of its assets without prior authorization. Aplt. Opening Br. at 38. In
any event, he argues that the ABOS defendants engaged in the Transaction with full
understanding of the abysmal financial condition of [Traditions] and its affiliates.
Id. We agree with the district courts reasoning that Mr. Doak has no basis for
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substantiating th[ese] claim[s]he can only allege what he believes [the ABOS]
[d]efendants would have known. Nor does [Mr. Doak] explain how such a contract,
between a third-party and [Traditions] would implicate the [transaction] between
Traditions and [Acrisure Services], and exemplify . . . bad faith. Aplt. App. at
734-35.
4. Fifth Exception Continuation
The fifth and final exception announced in Foster continuity of enterprise
is largely the same as the second exception for a consolidation or merger, but has the
additional requirement that the purchasing corporation holds itself out to the world
as the effective continuation of the seller corporation. Foster, 597 N.W.2d at 510.
We have previously explained the lack of evidence sufficient to satisfy the second
Foster exception. We also agree with the district court that Mr. Doak did not come
forward with any evidence to meet the additional requirement. Although there was
evidence that Traditions employees began to disseminate information about a new
name and contact information, Traditions was the seller corporation, not the
purchasing corporation. The record is devoid of any evidence that any of the ABOS
defendants held themselves out as the effective continuation of Traditions; indeed,
the evidence was to the contrary.
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C.
Fraudulent Transfer
To establish a claim of constructive fraudulent transfer, Mr. Doak must show
that
[a] transfer made or obligation incurred by a debtor is fraudulent as to a
creditor whose claim arose before the transfer was made or the
obligation was incurred if the debtor made the transfer or incurred the
obligation without receiving a reasonably equivalent value in exchange
for the transfer or obligation and the debtor was insolvent at that time or
the debtor became insolvent as a result of the transfer or obligation.
Mich. Comp. Laws 566.35(1); Okla. Stat. tit. 24, 117.A. Thus, Mr. Doak was
required to come forward with evidence from which a reasonable trier of fact could
find that the $4.5 million received by Traditions was not a reasonably equivalent
value for slightly more than 50% of its accounts and that Traditions became
insolvent when the transaction closed or became insolvent as a result of the sale.
As the district court noted, as the party challenging reasonably equivalent
value, [Mr. Doak] bears the burden of proof on this issue, but proffers nothing to
support his contention that [Acrisure Services] failed to pay reasonably equivalent
value. Aplt. App. at 736. Instead, what Mr. Doak attempted to do was to launch a
Daubert challenge3 to the ABOS defendants expert opinion that the transfer was
made for at least, if not more, than reasonably equivalent value. As the court noted,
the Daubert challenge came well after the deadline and Mr. Doak cannot do an end
3
light of the grant of summary judgment. This argument mischaracterizes the courts
order. Despite finding the motion was moot, the court nonetheless proceeded to
analyze the merits and found that abstention was unwarranted. We find no error.
The leading case in this circuit concerning Burford abstention is Grimes v.
Crown Life Insurance Company, 857 F.2d 699, 704-05 (10th Cir. 1988), in which we
held the following factors relevant to determine whether abstention is proper:
(1) whether the suit is based on a cause of action which is
exclusively federal . . . (2) whether the suit requires the court to
determine issues which are directly relevant to the liquidation
proceeding or state policy in the regulation of the insurance
industry . . . (3) whether state procedures indicate a desire to
create special state forums to regulate and adjudicate these
issues . . . and (4) whether difficult or unusual state laws are at
issue.
(citations omitted).
Since our decision in Grimes, the Supreme Court has narrowed application of
the Burford abstention doctrine. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706,
728 (1996) (Burford represents an extraordinary and narrow exception to the duty of
the District Court to adjudicate a controversy properly before it. (internal quotation
marks omitted)); see also New Orleans Pub. Serv., Inc. v. Council of New Orleans,
491 U.S. 350, 361 (1989) (NOPSI) (Burford abstention is proper only when there
are difficult questions of state law bearing on policy problems of substantial public
import whose importance transcends the result in the case . . . or [] where the
exercise of federal review of the question in a case and in similar cases would be
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should not, in fairness, be allowed to utilize evidence that was the focal point of
ABOS discovery requests to which [Mr. Doak] failed to respond. Aplee. Br. at 17.
Further, the motion to exclude was based on its alleged unreliability and
trustworthiness of the spreadsheet. Both contentions are borne out by the record.
Aplt. App. at 586; Aplee. Supp. App. at 45. Thus, there is no merit to Mr. Doaks
argument that the case has anything to do with Oklahoma state policy in the
regulation of the insurance industry.
The fourth Grimes factor, which requires the presence of difficult or unusual
questions of state law, is entirely lacking. The issues were neither complex nor
difficult. As the district court explained, [d]espite the involvement of insolvent
insurers, this case entails breach of contract, negligence, and breach of fiduciary
claimsnone of which present difficult questions of state law bearing on policy
problems of substantial public import whose importance transcends the result or
raise a hotly disputed question of state law. Aplt. App. at 718 (quoting NOPSI,
491 U.S. at 361).
V. CONCLUSION
The judgment of the district court is affirmed.
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